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Reed Elsevier v. Muchnick
Citation In re Literary Works in Electronic Databases Copyright Litigation, 509 F.3d 116, 85 U.S.P.Q.2d (BNA) 1217 (2d Cir. 2007) (full-text), rev'd and remanded, Reed Elsevier, Inc. v. Muchnick, __ U.S. __, 130 S.Ct. 1237 (2010) (full-text). Factual Background Shortly after the U.S. Supreme Court decided New York Times Co. v. Tasini,''533 U.S. 483 (2001). three preexisting class action copyright infringement suits, which had been suspended pending that decision, were activated and consolidated in the U.S. District Court for the Southern District of New York. A fourth, nearly identical action was coordinated with that consolidated action. Together, these claims comprise the litigation discussed in this article.''See Muchnick v. Thomson Corp. (In re Literary Works in Electronic Databases Copyright Litigation), 509 F.3d 116, 118 (2d Cir. 2007). Like Tasini, Reed Elsevier v. Muchnick was a class action lawsuit. The plaintiffs in Reed Elsevier consisted of individual authors and trade groups representing authors who produced written works for certain publishers on a freelance basis.Id. at 118-19. The publishers had licensed the articles from the freelance authors for print publication but later reproduced the articles in their electronic databases without compensating or otherwise obtaining the consent of the authors. Based on their copyrights in the freelance works, the plaintiffs brought suit against the publishers and the electronic database services for copyright infringement.Id. at 119. After the Tasini decision had affirmed the plaintiffs’ right to control electronic reproduction of their works, the district court referred the parties to mediation.Id. In 2005, after three years of negotiations, the parties reached an agreement that sorted plaintiffs’ claims into three groups for compensation purposes.Id. at 120. Category A claims concerned copyrights that were eligible for statutory damages and attorney’s fees under the Copyright Act.See id. (citing 17 U.S.C. §412). Category B claims concerned copyrights that qualified for actual damages only.See id. Category C claims, by far the most numerous, largely involved copyrights that were unregistered, and therefore their owners were precluded from bringing individual suits for damages of any sort.See id. The settlement assigned a damages formula to each type of claim. Category A claimants received a flat fee. Category B claimants received the greater of either a flat fee or a percentage of the original price of the work. Category C claimants also received the greater of either a flat fee or a percentage of the original price of the work. However, if the cost of all claims (plus the cost of notice, administration, and attorney’s fees) exceeded $18 million, then the amount paid to Category C claimants was reduced — potentially to zero — before the claims of Category A and B claimants were affected. This feature was called the “C-reduction.”''Id.'' In return for financial compensation, the plaintiffs agreed to release all past, present, and future claims against the defendants related to their articles’ appearance in electronic databases.See Brief for the United States as Amicus Curiae Supporting Vacatur and Remand at 8, Reed Elsevier, Inc. v. Muchnick, No. 08-103, (U.S. argued Oct. 7, 2009). District Court Proceedings Having reached an agreement, the plaintiffs and defendants moved the district court for class certification and settlement approval. Objectors opposed the motion on the ground that the settlement was inadequate and unfair to Category C claimants because they were paid little and singled out for reduction if the total claims exceeded $18 million. Objectors also maintained that the disparate treatment of Category C claimants illustrated that the named plaintiffs, who each possessed at least some registered copyrights, did not adequately represent those absent class members who possessed only unregistered copyrights. The defendants responded that Category C claimants were adequately represented and treated fairly because they would otherwise have been unable to bring actions for infringement at all under 17 U.S.C. §411(a) because their copyrights were unregistered.Id. After prolonged proceedings, the district court granted final class certification and final settlement approval in September 2005. Objectors appealed, again challenging the settlement’s fairness and the adequacy of the named plaintiffs’ representation.Id. Appellate Court Proceedings Before hearing oral argument, the Second Circuit Court of Appeals “became concerned that the District Court and the parties had passed over a nettlesome jurisdictional question” and sua sponte ordered the parties to address “whether the District Court had subject matter jurisdiction over claims concerning the infringement of unregistered copyrights.”''Id.'' Due to their mutual interest in achieving class certification and settlement approval at this stage, both plaintiffs and defendants argued that the Copyright Act’s registration requirement is not jurisdictional in nature.Id. at 122. They contended that, if a plaintiff brings a single claim based on a registered copyright, the district court acquires jurisdiction over any and all related copyright claims, even if those other claims arise from unregistered copyrights. They also argued that jurisdiction in this case was proper because the named plaintiffs’ works were registered.Id. at 123. A divided panel of the Second Circuit disagreed. The majority opinion first observed that Congress provides federal courts with only limited subject matter jurisdiction.Id. at 121. District courts derive their jurisdiction in copyright actions from two sections of Title 28 of the U.S. Code, §1331 and §1338. The first is a general grant of original jurisdiction over civil actions arising under federal law, and the second provides courts with a more specific grant of original jurisdiction over copyright infringement cases. However, the appellate court asserted that Congress has supplemented these basic jurisdictional grants with a separate statutory section — §411(a) of the Copyright Act, which “limits a district court’s subject matter jurisdiction to claims arising from ''registered'' copyrights only.”''Id.'' at 122 (emphasis added). Relying on its opinions in Well-Made Toy Mfg. Corp. v. Goffa Int'l Corp.''354 F. 3d 112 (2d Cir. 2003). and ''Morris v. Business Concepts, Inc.''259 F.3d 65 (2d Cir. 2001). and distinguishing the Supreme Court’s ruling in ''Eberhart v. United States,''546 U.S. 12 (2005). the appellate court held that the requirement of copyright registration prior to an infringement suit is jurisdictional''In re Literary Works in Electronic Databases Copyright Litigation, 509 F.3d at 121. and that the phrase “copyright claim” referred to each claim within a purported class.Id. at 125. Thus, because many of the plaintiffs’ copyrights were unregistered, the Second Circuit held that the district court lacked the authority to certify the class. It also held that this “jurisdictional defect” precluded supplemental jurisdiction under 28 U.S.C. §1367(a) as well.Id. at 127. Judge Walker dissented, arguing that, although the Second Circuit had labeled §411(a) as jurisdictional in the past, the Supreme Court’s ruling in Eberhart, which encouraged lower courts to “more carefully distinguish between true jurisdictional bars and claim-processing rules that may be waived,” merited a re-evaluation of the copyright registration requirement.Id. at 128 (Walker, J., dissenting). Categorizing Section 411(a) as an “enforcement mechanism” rather than a “rights-creating statute”''Id.'' at 130. and relying on Second Circuit precedent that “not all members of a settlement-only class need to possess a valid cause of action under the applicable law,”''Id.'' at 128 (referencing Lerner v. Fleet Bank, 318 F.3d 113, 125-26 (2d Cir. 2003) (holding that, in a RICO class action suit, the district court could exercise supplemental jurisdiction over plaintiffs’ state-law claims despite the fact that certain members of the plaintiff class lacked RICO standing)). he concluded that “the fact that some of the otherwise presumably valid copyrights have not been registered is an insufficient basis for undoing this class-action settlement.”''Id.'' U.S. Supreme Court Proceedings The U.S. Supreme Court granted certiorari to review the case on the following question: “Does 17 U.S.C. §411(a) restrict the subject matter jurisdiction of the federal courts over copyright infringement actions?”Reed Elsevier, Inc. v. Muchnick, __ U.S. __, 130 S.Ct. 1237 (2010). 17 U.S.C. §411(a) reads as follows: :No civil action for infringement of the copyright in any United States work shall be instituted until preregistration or registration of the copyright claim has been made in accordance with this title. In any case, however, where the deposit, application, and fee required for registration have been delivered to the Copyright Office in proper form and registration has been refused, the applicant is entitled to institute a civil action for infringement if notice thereof, with a copy of the complaint, is served on the Register of Copyrights. The Register may, at his or her option, become a party to the action with respect to the issue of registrability of the copyright claim by entering an appearance within sixty days after such service, but the Register’s failure to become a party shall not deprive the court of jurisdiction to determine that issue. Petitioners in the case (Reed Elsevier et al.) argued that the Section 411(a) registration requirement is a mandatory prerequisite to suit, not a restriction on the court’s jurisdiction.See Brief for Petitioners at 15, Reed Elsevier, Inc. v. Muchnick, No. 08-103, (U.S. argued Oct. 7, 2009). Drawing on the text, structure, legislative history, and purpose of the statute,See id. at 23-37. they argued that Congress never intended the registration requirement to be jurisdictional and that circuit courts interpreting it thus had failed to implement the “bright line” test articulated in Arbaugh v. Y&H Corp.Id. at 40-45 (citing Arbaugh v. Y & H Corp., 546 U.S. 500, 516 (2006) (“If the Legislature clearly states that a threshold limitation on a statute’s scope shall count as jurisdictional, then courts and litigants will be duly instructed and will not be left to wrestle with the issue. . . . But when Congress does not rank a statutory limitation on coverage as jurisdictional, courts should treat the restriction as nonjurisdictional in character.”)). Even if Section 411(a) is jurisdictional, petitioners argued that the restriction applies only to instituting actions, not settling them, because jurisdiction over an action generally extends to approving settlements that release claims the court lacked authority to try.See id. at 45-48. They warned that, if the Second Circuit’s “drive-by”''Id.'' at 40 (citing Steel Co. v. Citizens for a Better Environment, 523 U.S. 83, 91 (1998)). jurisdictional characterization of Section 411(a) were allowed to stand, it would thwart “the ability of parties to reach negotiated resolutions of their disputes involving unregistered works” and leave “the nation’s electronic databases and archives . . . permanently depleted.”''Id.'' at 3. Respondents (Pogrebin et al. and Irvin Muchnick et al.) advanced similar arguments, stating that Section 411(a) is not a bar to jurisdiction but rather a claim-processing rule, a prerequisite to suit that could be enforced or waived by the defendants.See Brief for Respondents Pogrebin et al. in Support of Petitioners at 5, Reed Elsevier, Inc. v. Muchnick, No. 08- 103, (U.S. argued Oct. 7, 2009); see also Brief for the Muchnick Respondents at 18-32, Reed Elsevier, Inc. v. Muchnick, No. 08-103, (U.S. argued Oct. 7, 2009). As support, respondents cited several circuit court opinions in which the jurisdiction requirement was waived or relaxed and therefore treated “in a manner fundamentally inconsistent with its being subject matter jurisdictional.”Brief for Respondents Pogrebin et al. at 5. They also argued that, even if the district court had lacked original subject matter jurisdiction over the case, it had supplemental jurisdiction because the claims of the Category-C authors with unregistered copyrights arose out of the same case or controversy as the claims of the Category-A and B authors whose copyrights were registered.See id. at 18-23; see also Brief for the Muchnick Respondents at 36-44. The United States, as amicus curiae, also supported vacatur of the Second Circuit’s judgment. Like petitioners, the U.S. argued that Section 411(a) does not limit a federal courts’ subject matter jurisdiction, but rather serves as a mandatory prerequisite to suit that should be strictly enforced when raised by a party.See Brief for the United States as Amicus Curiae Supporting Vacatur and Remand at 20-25, Reed Elsevier, Inc. v. Muchnick, No. 08-103, (U.S. argued Oct. 7, 2009). The U.S. argued that, while district courts should ordinarily enforce §411(a) sua sponte even if the defendant did not move to dismiss on those grounds, once the case has reached the court of appeals, the district court has already expended significant resources, so insisting on a rigid application of §411(a) would waste judicial resources.See id. at 25-31. Therefore, according to the U.S., non-compliance with the registration requirement in this case provided no basis for vacating the district court’s judgment.See id. at 30. With both petitioners and respondents advocating the same outcome — that the Supreme Court overturn the Second Circuit’s ruling — an unusual situation arose in which no party argued for the Court to affirm the judgment below. As a result, the Court appointed Professor Deborah Jones Merritt to serve as amicus curiae in support of the Second Circuit’s judgment. According to Professor Merritt, not only does the plain language of §411(a) clearly restrict the subject-matter jurisdiction of federal courts,See Brief of Court-Appointed Amicus Curiae in Support of the Judgment Below at 17-26, Reed Elsevier, Inc. v. Muchnick, No. 08-103, (U.S. argued Oct. 7, 2009). but courts, legislators, and scholars have traditionally interpreted §411(a) as being jurisdictional.See id. at 26-44. Furthermore, she argued that §411(a) serves such vital public purposes as supporting a public record of copyright claims, shielding federal courts from burdensome litigation, protecting defendants from frivolous lawsuits, and supplying the Library of Congress collections.See id. at 44-57. 17 U.S.C. §407 requires copyright owners, within three months of publication, to deposit two copies of their work with the U.S. Copyright Office for inclusion in the Library of Congress. This requirement ensures that the nation’s public library contains copies of every work published in the United States. 17 U.S.C. §407(a). Next, she argued that the integrity of the judicial process precludes the parties from waiving §411(a) because both parties invoked the jurisdictional bar before the district court to defend the fairness of their settlement, which rewarded the owners of registered copyrights at the expense of unregistered copyright owners.See Brief of Court-Appointed Amicus Curiae at 57-65. Finally, Professor Merritt argued that neither a special rule for settlement nor the supplemental jurisdiction act cured this jurisdictional defect because (1) courts must have jurisdiction over class actions in order to terminate the claims of absent class members and (2) the many authors and databases involved in this lawsuit did not constitute a single case or controversy.See id. at 65-69. The Computer and Communications Industry Association (CCIA) also provided an amicus brief in support of the Second Circuit’s judgment. Echoing Professor Merritt’s arguments, the CCIA cast the registration requirement as a necessary protection for Internet service providers, noting that, “when every blog and tweet might be protectable under copyright, the registration requirement dramatically reduces technology companies’ potential exposure to copyright infringement claims.”Brief for Amici Curiae Computer & Communications Industry Association and Netcoalition in Support of the Judgment Below at 3, Reed Elsevier, Inc. v. Muchnick, No. 08-103, (U.S. argued Oct. 7, 2009). CCIA argued that the Second Circuit’s opinion was correctly decided''See id.'' at 23-35. and that the petitioners’ writ of certoriari should be dismissed on two grounds. First, there was no case or controversy before the court because petitioners themselves argued in the lower courts that §411(a) was jurisdictional in nature.See id. at 7-18. Second, circuit courts were in agreement that §411(a) limits federal courts’ subject matter jurisdiction; therefore, there was no circuit split, the traditional grounds on which the Supreme Court grants certiorari.See id. at 18-23. For these reasons, CCIA urged that the Supreme Court dismiss the petitioners’ writ. The Supreme Court heard oral argument on October 7, 2009,Associate Justice Sonia Sotomayor recused herself from the case, leaving only eight of the nine justices to rule on the issue. This creates the potential for a 4-4 split, in which case the Second Circuit’s holding would stand. Some observers have speculated that Justice Sotomayor’s recusal stems from either her 1997 ruling in the Tasini case as a federal judge in the Southern District of New York, or her position on the Second Circuit when the court, in 2008, refused to grant an en banc rehearing of In re Literary Works in Electronic Databases Copyright Litigation. See Eight Justice Court for Copyright Case, SCOTUSBLOG, Sept. 4, 2009.http://www.scotusblog.com/wp/eight-judge-court-for-copyright-case although it has not yet issued its opinion. The outcome of this case will not only affect the particular settlement at issue,However, if the Supreme Court upholds the Second Circuit’s judgment (and thus nullifying the settlement), certain members of the class who had registered their copyrights prior to infringement or prior to the legal action may still be entitled to bring suit under the Copyright Act or to negotiate another settlement with the defendants. but may well have broader implications for authors, publishers, and the general public. References Category:Case Category:Case-U.S.-Federal Category:Case-U.S.-Copyright Category:Copyright Category:2010